Mutual funds have essentially brought investing to the masses. Mutual funds represent pools of funds from thousands, or even millions of investors. These funds are pooled into a single investment vehicle that has a ticker symbol and can be bought or sold on a daily basis.

Mutual funds come in a wide array of classes and asset mixes. Some invest purely in stocks where some manages look to outperform an underlying index (active funds) or others simply look to match an index (passive funds). Bond funds can pursue both, and some mix bonds and stocks to help investors outsource asset allocation selection. Nearly any type of security, including venture capital, real estate, private equity, or commodities can be put into a basket and offered as a mutual fund.

A closed-end fund is an investment fund that issues a fixed number of shares in an actively managed portfolio of securities. The shares are traded in the market just like stocks, but because closed-end funds represent a portfolio of securities they are very similar to a mutual fund. Unlike a mutual fund, the market price of the shares is determined by supply and demand and not by net asset value.

In addition to trading commissions, mutual funds charge expense ratios. Be sure to look up funds at Morningstar.com or related rating entities to fully investigate and research mutual fund strategies, expenses, and historical performance.

Objectives and Risks

Mutual funds offer investors instant diversification, which helps spread bets across investments and lower the risk that one could blow up and really hurt a portfolio. They also let an investor hire a professional manager and invest really any amount (such as $1,000, or less) to get diversified quickly. Of course this is return for a fee, and active funds don’t have the best track records of justifying the higher fees they charge.

How To Buy or Sell It

Many thousands of mutual funds exist and they can be purchased directly through the mutual fund company, a bank, a brokerage or a financial planner. Close to 100 million individuals in the United States own mutual funds. The commissions on mutual funds can vary widely depending on the company and the style of the fund. A load mutual fund charges you for the shares bought, plus a sales fee. A no-load fund sells its shares without a commission or sales charge, but management fees can be higher. (For an in-depth look at mutual funds, see our Mutual Fund Basics Tutorial.)